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The Credence Blog 2019

Overview - Tax payable to HMRC on a deceased person's estate.

5th June 2019  (2 minute read)

This blog post explores how Inheritance Tax works and which other taxes HMRC applies to a deceased person's estate.

When someone dies, their estate – their cumulative assets, money, investments and possessions, less any debts – will be passed on to their beneficiaries. These are usually family members but may also include friends and charities. If the deceased has left a Will, the beneficiaries will be named. The Will will also name an Executor – a person who the deceased has entrusted to ensure that their wishes are carried out. In the case of intestacy, where there is no Will, the entitled beneficiaries must be established in accordance with the rules of intestacy. This will be the role of the Administrator (who has exactly the same duties as the Executor – where there is a Will).

Whether you are the Executor or the Administrator, you will have responsibility for ensuring that all debts and taxes due are paid before any money and assets are distributed from the estate. This is a legal requirement and failure to carry out these duties can have serious consequences, which is why many people choose to appoint a professional adviser to handle these matters.

What is Inheritance Tax and who pays it?

Inheritance Tax is a tax on the deceased’s estate after they die. You may sometimes also hear the phrase ‘death duties’, though this term is now redundant as Inheritance Tax consolidated these multiple duties into a single tax in 1986. Technically, Inheritance Tax is a transfer tax on the net collective value of an estate as it passes from one person – the deceased – to another person(s). Like any other tax, it is collected by HMRC and like any other tax, there are requirements governing its payment and penalties for failure to comply.

How much Inheritance Tax do I have to pay?

Every estate benefits from a threshold of value below which no Inheritance Tax is payable. This is currently £325k, so if the deceased's estate is valued at less than this, you will not need to pay any Inheritance Tax – though you will still have to complete the Inheritance Tax forms and show that the estate has been accurately valued. The exception to this rule is the estate of a married couple or civil partners (a couple joined by a civil partnership) where the first to pass away has left their entire estate to the surviving spouse or partner. In this case, you will not need to pay any Inheritance Tax unless the value of the estate exceeds £650k when the second person dies.

Inheritance Tax is levied at a rate of 40% on the net value of the estate beyond the nil-rate threshold. The net value of the estate is calculated by working out the gross value – the total worth of all assets – and then deducting any debts, such as mortgages, loans and credit card bills and bequests to charities. You also need to look at whether they made gifts of more than £3k to anyone in the seven years prior to their death – these would exceed the tax-free gift allowance and would therefore be considered as part of the taxable estate. There are also some exclusions that apply to certain types of landholding and to overseas property bequeathed to an overseas citizen. In these cases, you will almost certainly need the support of a professional adviser to accurately calculate a value for Inheritance Tax.

Who calculates Inheritance Tax?

It will be up to the Executor or Administrator to calculate the value of the estate and to identify any and all applicable deductions. In very small or simple estates this can be fairly straightforward but it’s surprising how quickly things can become complicated. Valuing property, art, antiques, jewellery and investments can often take time and require expert advice. A professional Administrator will take care of all of this for you.

When does Inheritance Tax have to be paid?

A Grant of Probate will not be given until confirmation is received from HMRC that all due Inheritance Tax has been paid. Since the Grant of Probate is the key to unlocking the estate for distribution to any beneficiaries, this means in practical terms that HMRC expects you to pay Inheritance Tax before you do anything else. Inheritance Tax should be paid within six months of death. If you do not pay it within this time, HMRC will start to charge interest on the overdue sum.

This may be another reason for seeking professional advice and support in calculating the value of the estate and completing HMRC’s Inheritance Tax forms. Also, any delay in paying Inheritance Tax will delay the distribution of the estate to other beneficiaries, which can lead to friction and conflict.

Which other HMRC taxes apply?

This will depend on the deceased person’s circumstances but there may be Income Tax due on earnings during the year until their death. This may include any rent collected on property and earnings from investments in the UK and overseas. You will need to complete a tax return for the estate on this income.

In some cases, Capital Gains Tax may also be payable if the value of the deceased’s property and any other sold assets has risen since they were valued for probate purposes. Beneficiaries inherit assets at their probate value so if this rises they are liable to pay Capital Gains Tax on the increase.

What happens if I don’t pay or don’t pay the right amount?

As the Executor or Administrator, you are responsible for accurately calculating and declaring any taxes payable from the estate. This is a legal responsibility and not to be taken lightly. Failure to discharge these duties accurately may leave you personally liable for any fines and interest due, particularly if you have subsequently distributed the value of the estate to other beneficiaries; they are under no obligation to provide funds to pay towards any miscalculations.

Credence Wills can assist with estate administration and  help you handle the affairs of someone who has died. If you have any questions about estate administration or handling Inheritance Tax, get in touch on 01943 678 100.


Rock Star or not, everyone needs a Will.

11th March 2019

The death of David Bowie caused a generation to mourn the loss of one of the world's most charismatic musical stars. The man associated with numerous wild and wacky on-stage personas was perhaps one of the last people you would associate with planning for his death and making sure that his financial situation was left in a highly organised manner.

However, news reports have shown that Bowie not only understood the importance of having a Will but had also given significant thought to how his estate should be distributed to his family and loved ones. He left the majority of his estimated $100m fortune to his wife, the model Iman, and his two children. However, he also wanted to leave a legacy to his long standing personal assistant, Corrine Schwab, as well as his long term friend and the nanny to his eldest child, Marion Skene.

Bowie also used his Will to stipulate his very specific wishes regarding how he wanted his funeral to take place. As per his wishes, he was cremated as part of a highly private ceremony attended only by his immediate family, before his ashes were scattered in Bali.

While Bowie's Will dealt with the multi-million pound estate of a global star, the same sensible approach to estate planning should be adopted by everyone. While the assets of Joe Public are unlikely to reach into the millions, rising property value and increased salaries mean that you may be worth considerably more than you might think. It is hugely important to think about how you want these assets to be disributed should the worse happen as it could be the difference between your estate being shared amongst your loved ones in line with your wishes, or a potentially divisive and ugly family argument.

Fees to obtain a Grant of Probate are expected to increase

21st January 2019

In November 2018, the Ministry of Justice announced that
legislation to introduce tiered probate fees had been
presented before Parliament. Consequently, It is possible some changes to probate fees may take effect from as early as April 2019 if the legislation is passed by the government.

These potential increases in probate fees have been in the news since February 2017, when the plan to introduce a banded structure of fees based on the estate value was originally revealed. The plans were put on hold for quite some time but it now appears that the government will finally move forward with the changes during 2019.

The Ministry of Justice declared that the recommended fee model aims to keep up with today’s digital society, creates a “fair and more progressive way to pay for probate services”, and helps to fund an effective courts and tribunals service.

The current fixed fee for obtaining a Grant of Probate is £215 for individuals and £155 for professional bodies. If the proposed fees were to come into effect however, the fees will instead be based on the value of the estate as follows:

Estates worth less than £50,000 will typically not require a Grant of Probate. The estate threshold will rise from £5,000 to £50,000 if the legislation is introduced.

From £50,000 up to £300,000 = £250 fee
From £300,000 up to £500,000 = £750 fee
From £500,000 up to £1 million = £2,500 fee
From £1 million up to £1.6 million = £4,000 fee
From £1.6 million up to £2 million = £5,000 fee
More than £2 million = £6,000 fee

The planned fees have recently been largely criticised by the House of Lords. Lord Marks of Henley on Thames said: “That this House declines to approve the draft Order, because it would be an abuse of the fee-levying power, since the proposed increased fees substantially exceed the cost involved in making grants of probate and would amount to a tax, which should only be introduced, if at all, by primary legislation.” The criticism received by the Lords could result in the government reconsidering the changes, although the government are not obliged to back down on their proposal.

The updated fees could be introduced this year but at present nothing is set in stone. 

Inheritance Tax Simplification

3rd January 2019

It is expected that there could also be some changes to simplify Inheritance Tax in 2019. In November 2018, the Office of Tax Simplification (OTS) released their first report following a review of the current Inheritance Tax system. The Chancellor requested the review and the OTS provided recommendations to simplify Inheritance Tax from an administrative and technical standpoint.

The OTS recommended that “The government should implement a fully integrated digital system for Inheritance Tax”. We predict that the government will start to create a digital system this year but this will be a time-consuming task. It is probable that the government may first proceed with some of the other recommendations made by the OTS that will be quicker to implement.

These include simplifying the current Inheritance Tax forms, establishing a short form for the simplest estates, introducing an automated payment receipts system, and streamlining the probate and payment process with HM Courts and Tribunals Service.

The OTS are expected to release a second report covering wider areas of concern in spring 2019.

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